5HCA International Limited and any company in the group as appropriate.6The area inside the North and South Circular Roads.7Issues statement.3(e) ToH5: there may be barriers to entry into the supply of privately-funded healthcare services.(f) ToH6: there may be information asymmetries and limited information available topatients as well as general practitioners (GPs) and possibly insurers.(g) ToH7: there may be vertical linkages that lead to foreclosure.13. We reported on the progress of our investigation under each of these ToHs when wepublished our annotated issues statement in February 2013 and our provisionalfindings in August 2013.8The relevant markets14. Privately-funded healthcare services consist of highly differentiated medical treatments that can be segmented, to a large extent, by type of care (ie inpatient, daycase and outpatient) and by specialty (eg cardiology, orthopaedic). Privately-fundedhealthcare services are provided to patients mainly by consultants, other medical andclinical professionals, private hospitals and clinics, and NHS PPUs. These servicesare mainly funded by patients themselves or by insurers.15. When defining the product market(s), we first looked at evidence on demandsidesubstitution by patients across different medical treatments and across privatelyfunded and NHS-funded medical treatments. We then considered whether, in theabsence of demand-side substitutability across medical treatments, private healthcare providers have the capabilities and assets to redirect services across medicaltreatments (supply-side substitution). We focused this analysis of private healthcareproviders on private hospitals and consultants. In addition, in relation to hospitals, wealso considered whether the set of private healthcare providers and the conditions ofcompetition were similar across medical treatments.16. We found distinct product markets in the provision of hospital services forindividualspecialties and, for each specialty, separate markets for inpatient, day-patientandoutpatient services. In the provision of consultant services, we considered eachspecialty as a separate product market.17. In relation to hospital services, in our competitive assessment we considered constraints within these markets arising in the provision of more complex treatments

(also referred to as high acuity or tertiary care) and constraints exerted fromoutside the markets by NHS hospitals.18. As regards geographic markets for (private) healthcare, most patients haveapreference to travel shorter distances, all else being equal, and to choose localconsultants and hospitals to receive medical treatment. This indicated to us that thegeographic scope of competition in the provision of privately funded healthcareservices is local for both consultant and hospital services, and was likely to bebroadly similar in the two cases. However, for the purposes of our investigation, itwas not necessary to define the geographic scope of the local markets for consultantservices.19. In relation to hospital services, we considered the location of suppliers and definedlocal geographic markets as the areas covering sets of private hospitals and PPUscompeting closely because enough patients considered them to be substitutes. For

8Annotated issues statement and provisional findings report.4hospitals located outside central London, where private hospitals are generallygeographically dispersed, we identified the local geographic markets by reference toeach hospitals catchment area, ie the area around the hospital from which ahospitals patients were drawn. By contrast in central London there were manyhospitals in close proximity. We found that generally hospitals in central London wereclose substitutes for each other, but were only weakly constrained by hospitalsoutside central London. We therefore considered the area covering the privatehospitals including PPUs in central London as a separate geographic market.20. However, in all our local competitive assessments, we took into account thestrengthof the competitive constraints exerted on a private hospital by other hospitalsbothwithin and outside these markets.Competitive assessment of private hospitals21. We focused our analysis on private hospitals including PPUs that provide inpatientcare. We noted that, while providers of inpatient care compete with a wider setofproviders, including day- and outpatient-only clinics, in the provision of day-patientand/or outpatient care this was unlikely to hold across the full range of day-patientand outpatient treatments. In particular, certain day-patient and outpatient treatments(for example, those which require inpatient care as a back-up or those which areancillary to an inpatient treatment) were likely to be subject to similar competitiveconditions as those arising in the provision of inpatient treatments.Barriers to entry and expansion22. We examined the extent to which incumbent private hospitals were constraine

d bythe threat of entry or expansion. We concluded that significant barriers to entry andexpansion exist. We concluded that in all local areas including central London acombination of high sunk costs and long lead times associated with developing aprivate hospital together constituted significant barriers to entry and expansion.23. In addition, we also found that in central London the lack of availabilityof suitablesites from which to operate a private hospital and the difficulty in obtaining planningpermission for a private hospital were further significant barriers to entry andexpansion.Local competitive constraints (including concentration)24. We assessed local competitive conditions in order to determine whether or not thecompetitive constraints exerted by private hospitals on each other at the locallevelwere too low.25. We identified those private hospitals which were unlikely to cause concernand didnot require further examination. For the remaining private hospitals, we carriedoutlocal competitive assessments where we considered the available evidence,including: (a) the location of hospitals and the relative accessibility of rivalhospitals(ie the degree of geographic differentiation); (b) the hospitals product offer and howthis compared with nearby private hospitals and PPUs (ie the degree of productdifferentiation); (c) the importance to insurers of the areas in which the hospital islocated; (d) documentary evidence from insurers and hospital operators; (e) theviews of both hospitals and insurers; and (f) evidence of hospitals competing for PMIbusiness at the local level.526. As a result of the competitive assessments of individual private hospitals,we found70 hospitals outside central London were subject to weak competitive constraints.BMI9had 37 such hospitals, Spire1012, Nuffield1111, Ramsay1227. We found that the competitive constraints exerted on HCA by other private hospitaloperators including PPUs in central London were weak. We also considered that thecompetitive constraints exerted by private hospitals located in Greater London and bythe NHS, both inside and outside central London, were, if any, very limited. Itwasalso our view that by virtue of its competitive position HCA has an advantage over

other private hospital operators when bidding for PPU contracts and this wouldfurther strengthen HCAs position in central London. Moreover, further acquisitions ofGP practices by HCA, in particular in key central London locations for insurerscorporate clients, could raise vertical competition concerns by increasing the scale ofHCAs vertical relationships with such GP practices.6 and otherindependent hospital operators 4.Market outcomes28. We looked at price outcomes, non-price outcomes and profitability.Price outcomes29. Prices of treatments for self-pay patients were generally set locally and therefore varyacross a hospital groups portfolio of hospitals. We tested statistically whetherpricescharged to self-pay patients were higher in areas where private hospitals facedweaker competitive constraints, using a technique known as price-concentrationanalysis (PCA). Our analysis showed that there was a causal relationship betweenlocal concentration and self-pay prices for inpatient treatments. Private hospitaloperators, on average, charged higher self-pay prices in local areas where theyfaced weaker competitive constraints. Our review of the qualitative evidence, whichincluded hospital operators views and a wide range of internal documents, indicatedthat the behaviour of hospital operators was consistent with this result.30. With regard to insured patients, prices of treatments are set in national bilateralnegotiations between hospital operators and insurers. Prices are generally the samefor all hospitals in the hospital operators portfolio of hospitals contracted with theinsurer, thus reflecting average prices of each treatment. It is generally impossible torelate insured prices to differing local competitive conditions. This is not a problemwhen considering insured prices for HCA as virtually all its hospitals are located in asingle geographic market, namely central London. During these negotiations,discussions typically focus on the price of the overall bundle of the hospital operatorsservices (ie the associated revenue), with relatively little focus on the priceofindividual treatments.31. Internal documents of both hospital operators and insurers reporting the planning ofnegotiations showed that the competitive position of private hospitals at the locallevel was an important factor that both insurers and hospital operators took intoconsideration in their negotiations over insured prices. This was consistent with theexistence of a relationship between local concentration and insured prices.9BMI Healthcare Limited and any company in the group as appropriate.10

Spire Healthcare Limited and any company on the group as appropriate.11Nuffield Health and any company in the group as appropriate.12Ramsay Health Care UK Operations Limited and any company in the group as appropriate.632. We also found that the insurers and hospital operators were dependent uponeachother and it did not appear that either side anticipated that it would survive withoutreaching an agreement on prices. This suggested to us that both parties to thenegotiations had some degree of bargaining power, to an extent which depends onthe strength of their respective outside options.33. We conducted an empirical analysis of insured prices for inpatient and daycasetreatments using a methodology which controls for a number of differences betweenhospital operators. Our analysis found that HCA charged significantly higher prices toinsurers than The London Clinic (TLC), its closest competitor in central London,andit had significantly higher shares of supply and of capacity. We considered thatourfindings applied across treatments including outpatient treatments as well asinpatient and day-case. We found price differences between HCA and TLC onaverage across insurers, and for the large majority of insurers, for each year between2007 and 2011. In addition, we found that most insurers paid HCA prices that weresimilar to and in some cases higher than the prices paid by self-pay patients onaverage in 2007 to 2011. Notwithstanding the limitations of our empirical analysis, wefound that all the results were consistent with our hypothesis that local substitutabilityplays a role in determining insured prices.34. Outside central London, in relation to BMI, Spire, Nuffield and Ramsay, ourinsuredprice analysis results were mixed. We found that:(a) over the period 2007 to 2011, Ramsay, which had the least concentrated portfolioof hospitals relative to the other three operators, also received on average thelowest prices from insurers. However, BMI, which had the most concentratedportfolio, received broadly similar prices to Nuffield and Spire (which had abroadly similar concentration of hospitals of concern);(b) the insurer-specific price index results, except for one insurer, were notconsistent with the average price index results; and(c) Some insurers generally paid prices to the four national hospital operatorsthatwere significantly lower than the prices paid by self-pay patients on average overthe period 2007 to 2011, whilst other insurers generally paid prices at least ashigh as self-pay patients.35. As noted at paragraph 33 above, there were a number of limitations to our empiricalanalysis. Notwithstanding this, overall we found that, whilst some of the results were

broadly consistent with our hypothesis that local substitutability plays a roleindetermining insured prices, other results were not.Non-price outcomes36. In relation to non-price outcomes, we found no evidence that quality is generally aconcern in relation to privately funded healthcare. We considered that it wouldbeextremely difficult for the CC to assess quality in relation to the provision ofprivatehospital services as there is a lack of objectively comparable measures of quality(see further paragraphs 66 to 67 below). However, subject to this difficulty, ourreview of the evidence submitted found that, both within and outside central London,there was no evidence of material quality differences between private hospitaloperators. We also found that, notwithstanding the weak competitive constraintsandbarriers to entry and expansion, there is a degree of competition over both qualityand range in many local areas, including central London. The evidence indicatedthatoverall, quality and range would not worsen with greater rivalry and we had reason tobelieve that they would improve in more competitive markets. We expect that the7package of remedies we are putting in place (see paragraph 71 below) will improvequality and range as well as price.Profitability37. An important indicator of the extent of competition in a market is the level of profits ofthe firms involved. We assessed the profitability of the seven largest private hospitaloperators in the UK, which account for almost 74 per cent of the market for privatelyfunded acute healthcare. We conducted the assessment in line with our Guidelines,13valuing assets on the basis of replacement costs.1438. From our profitability analysis, we concluded that during the period underreview BMI,HCA and Spire have been earning returns substantially and persistently in excessofthe cost of capital. Ramsay has earned returns in excess of the cost of capitalonly inthe last three years of the period and not in the first two and a half years. Asa result,we did not consider that Ramsay was able to earn returns that were persistentlyinexcess of its cost of capital. We did not find that Nuffield was earning returnssubstantially and persistently in excess of the cost of capital over the relevant period.Conclusions on our competitive assessment of private hospitals39. We concluded that weak competitive constraints faced by private hospitals i

ncludingPPUs in many local markets across the UK, including central London, combined withbarriers to entry and expansion, lead to higher prices being charged for inpatienttreatments as well as some day-case and outpatient treatments to self-pay patientsin those local areas.40. We also concluded that weak competitive constraints faced by HCA, combinedwithbarriers to entry and expansion, lead to higher prices being charged by HCA acrossthe range of treatments to insurers for insured patients in central London.41. The Inquiry Group found that the features in paragraphs 39 and 40 gave riseto AECsas set out in paragraphs 6 and 7 above.42. Three members of the Inquiry Group concluded that weak competitive constraints inthe provision of hospital services by private hospitals, combined with barriersto entryand expansion, lead to higher prices being charged by BMI, Spire and Nuffieldacross the range of treatments to insurers for insured patients outside centralLondon. They did not consider that this was the position in relation to Ramsay.However, the other two members of the Inquiry Group did not find that weakcompetitive constraints outside central London, combined with barriers to entryandexpansion, were leading to higher insured prices across the range of treatmentsoutside central London.43. Where, as here, an Inquiry Group comprises five members, four of the members ofthe Inquiry Group must make the decision that a feature, or combination of features,of a relevant market prevents, restricts or distorts competition in connection with thesupply or acquisition of any goods or services in the UK or a part of the UK.1513Guidelines for market investigations, CC3,Ourdecision, therefore, was that the weak competitive constraints combined with barriersAnnex A, paragraph 14.14This approach is likely to produce different results to that shown in publishedaccounts, particularly where businesses havebeen acquired at a cost that is much more than the replacement cost of the assets.15Paragraph 20(5) of Schedule 7 to the Competition Act 1998 (as amended).8to entry and expansion that we found did not give rise to AECs in relation to insuredpatients outside central London.Consultants44. We considered two theories of harm related to consultants: that individualconsultants or consultant groups in some local areas may have market power over theirpatients and/or insurers and that an insurer may have buyer power over individua

lconsultants which may lead to a reduction in the quality of service to patientsoraffect consultants incentives to innovate.Individual consultants45. We found that there were factors which indicated that some individual consultantsand some consultant groups in some local markets may have market power.However, we did not find that any local market power by individual consultantsadversely affects competition in any local market for any specialty in the UK.Consultant groups46. We considered that the formation of consultant groups, as in other professions, ofitself cannot be presumed to be harmful to competition. We carried out a priceanalysis at the local level on six anaesthetist groups which set prices and which wereidentified as having high local shares of supply and as being of concern to insurers.The analysis showed some evidence of price effects in one case, mixed evidence intwo cases and no price effects in the other three. We decided that the results of thepricing analysis and the difficulties in obtaining data on anaesthetist groups did notjustify pursuing this line of inquiry. Similarly, in relation to other consultant groups,given the limited evidence on such groups and the results of the price analysisinrelation to anaesthetist groups, we did not consider that a detailed assessmentof anyparticular consultant group in any local area would be justified.47. We therefore did not find that the formation of anaesthetist groups or other consultantgroups in general was having a widespread adverse effect on competition acrossmany local areas. In addition, the evidence did not lead us to conclude that theformation of any individual anaesthetist group or other consultant group adverselyaffects competition in any local market.48. We found that at least the two largest insurers, Bupa and AXA PPP, have significantbuyer power, but we did not find sufficient evidence that it was currently beingexercised in such a way as to harm competition by suppressing fees to uneconomiclevels resulting in a shortage of consultants in private practice or to a reduction ininnovation or quality of consultant services. Indeed, our view was that the incentivewas on insurers to promote competition among consultants on price and quality andmaintain innovation and quality to protect and improve demand for private medicalinsurance.49. We found that some insurers, in particular Bupa and AXA PPP, were requiringsomeindividual consultants to agree not to charge patients more than the relevant insurersmaximum reimbursement rate as a requirement to be recognized and therefore totreat the insurers policyholders (fee-capping). On balance, the evidence we recei

veddid not demonstrate that, at present, Bupa (or indeed any other insurer) wasdistorting competition between consultants by imposing fee-capping, in particular onnewly-recognized consultants, as a condition for recognition. There were clearbenefits to policyholders in insurers promoting lower-cost consultants which should9be passed on to their policyholders in the form of lower premiums. However, therewas also the risk that without transparent and fair review mechanisms and flexibilityin application, uniform fees could lead to a distortion of competition betweenconsultants and an adverse effect on quality and innovation.50. We received many complaints about the conduct of the insurers in their dealings withconsultants, a high proportion relating to Bupa. The vast majority were from consultants, but there were also approximately 40 complaints from policyholders. Tradebodies and some hospital operators supported these concerns. We considered thatwhilst many of the issues raised did not indicate a current competition problemin theprovision of consultant services, they raised important issues. We considered thatinsurers, and in particular Bupa, as they increase their role in directing patients toconsultants, needed to ensure that their policyholders were provided with clearandaccurate information about the terms of their policies. Similarly, they needed toensure that their interaction with consultants was fair and transparent to enableconsultants to manage their practices and treat their patients effectively.Clinician incentives51. One of the ways in which private hospitals attract business is by encouragingconsultants to treat private patients at their facilities. As most patients arereferred toconsultants by GPs, private hospitals may also try to encourage GPs to refer patientsto consultants who use their facilities. In doing so, private hospitals can be expectedto take account of the General Medical Councils (GMCs) advice contained in itsGood Medical Practice and associated guidance.52. The competitive harm that potentially arises from clinician incentives wasthat,despite caveats relating to patients best interests, such incentives might inclineconsultants to recommend treatment at a particular private facility rather thanatanother facility which may have equivalent or better facilities and/or which maybemore competitive on price. Patients would not be aware that the clinician may haveother incentives to recommend a particular facility or particular treatment ordiagnostics. In these circumstances, private hospital operators may choose tocompete over the value and nature of rewards that they offered to attract referralsrather than on the basis of the quality or price of their services.53. We found that private hospital operators use a variety of benefits and sche

mes toencourage clinicians to treat patients at, or commission tests from, their facilities andthat these were widespread. What was also relatively common was the lack oftransparency in relation to such schemes. We considered whether some benefits andincentive schemes were more likely to give rise to competitive concerns than others.54. Benefits provided to clinicians ranged from basic workplace amenities suchas freetea and coffee, newspapers and stationery to higher-value benefits such as freeorsubsidized consulting rooms and parking spaces, payment of or contributionstowards medical indemnity insurance for private work and free or subsidizedsecretarial services. In addition, we found formal incentive payment schemes whichlinked consultant performance in terms of revenue generation to cash rewards. Wefound that cash-based incentive schemes became much less common from around2011, but that equity participation arrangements, which shared some of the characteristics of these incentive schemes, became more common.55. We concluded that the value of certain benefits provided by hospital operators toreferring clinicians practising at their facilities, in particular basic workplace amenities,were very low value that they would be unlikely to influence their conduct. We foundthat direct benefits and incentive schemes were more likely than indirect schemes to10affect competition adversely and that these are more likely to arise in the context ofclinician advice on choice of private healthcare facility than choice of treatment.56. We found that the capacity of indirect schemes to influence clinician conduct, inwhich we would include certain equity participation arrangements, varied with theextent to which an individuals incentives were diluted and with their value. We noted,however, that equity participation agreements were often accompanied by consultantcommitments to practise at the facility concerned, in which case competition wouldbe adversely affected, irrespective of caveats regarding the patients best interests.Conclusion on clinician incentive schemes57. We found that the existence of certain benefits and incentive schemes operated byprivate hospital operators which reward (directly or indirectly) referring clinicians fortreating patients at, or commissioning tests from, their facilities were a feature whichadversely affects competition in the provision of hospital services by private hospitaloperators across the UK.Information availability and asymmetry58. We considered information availability and asymmetry in three contexts: choosing a

consultant, choosing a treatment option; and choosing a private healthcare facility.Choosing a consultant59. We took the view that for competition between consultants to function well,patientswould need to know, in addition to the consultants fee structure, information aboutthe consultants qualifications, areas of expertise, extent of experience andperformance.60. We found that information on the qualifications and specialisms of consultants wasreadily available across the UK via private and NHS hospital websites, portals suchas Dr Foster, GPs and consultants own websites, although information onconsultants fees was more limited.61. NHS England has recently published individual consultant performance data in tenspecialisms, with plans to extend this initiative significantly over the next few years.1662. We could not be sure when or whether the remaining consultant performance datawhich it is envisaged will be disclosed in England will appear, nor whether plans todisclose the same or analogous information in Scotland, Wales and Northern Irelandwill emerge. Moreover, we thought that the data published by NHS England, whileuseful, would not represent a comprehensive solution to the current lack of performance information on consultants. In particular, we were concerned that the majority ofthis information focused on mortality rates, which can be very low for many of theprocedures listed, making them an unreliable basis on which to distinguish betweenconsultants. We thought that a broader range of outcome measures would benecessary to facilitate patient choice.We understood that no equivalent programmes to disclose consultant performanceinformation were envisaged for the rest of the UK.16In particular, NHS England plans to include a broader range of specialties andprocedures in the dataset.www.nhs.uk/choiceintheNHS/Yourchoices/consultant-choice/Pages/consultant-data.aspx.1163. In addition, we were concerned that there was evidence to suggest that someinsurers were not currently being explicit with patients regarding the basis onwhichthey were recommending or not recommending a particular consultant. For a patientto make an informed choice, they must understand whether a recommendation isbased on cost or quality.64. We therefore concluded that a lack of sufficient independent, publicly availableperformance and fee information on consultants was a feature in the provision of

privately funded healthcare services by consultants which adversely affected competition between consultants by preventing patients from exercising effective choicein selecting consultants.Choosing a treatment option65. Whilst we acknowledged that information asymmetry between consultant and patientwas inevitable, we considered that, in order for competition between consultantsandbetween consultants and alternative healthcare pathways to function well, patientsshould have access to information on the comparative benefits of different treatmentoptions.66. We found that patient information on treatment options was readily available acrossthe UK. Our conclusion was, therefore, that a lack of patient information on treatmentoptions was not a feature of the provision privately funded healthcare servicesgivingrise to AECs.Choosing a private hospital67. Information on the performance of private healthcare facilities has been poor in thepast and below the standard of the information available on NHS hospitals. Duringthe course of our investigation a fresh initiative (the Private Healthcare InformationNetwork (PHIN)) was launched to improve the quality of information that wasavailable to patients.68. Whilst this information was expected to improve in terms of healthcare facilitiescoverage and range of indicators, we concluded that, at present, it is insufficient topromote competition between private healthcare facilities. We therefore concludedthat the lack of publicly available performance information on private healthcarefacilities was a feature of the provision of privately funded healthcare services acrossthe UK due to the distortion of competition between private healthcare facilities bypreventing patients from exercising effective choice in selecting facilities atwhich tobe treated.Detriment from the AECs identified69. Paragraphs 6 to 10 above set out the AECs that we have found. We have estimatedthe consumer detriment resulting from the market power of the three largest privatehospital operators (BMI, HCA and Spire) using our profitability analysis. Togetherthese hospital operators account for 52 per cent of privately-funded healthcareservices.70. This analysis was based on the private hospital activities of the relevantfirms. AsNHS services are outside the scope of our reference, we have sought to excludethem from our estimate of detriment. Our estimate apportioned earnings beforeinterest and tax (EBIT) and capital employed between NHS and private work in

proportion to the revenue earned from each source. We then calculated the12difference between the return on capital employed (ROCE) and the cost of capital(taken to be 10 per cent).71. On this basis, our estimate of the consumer detriment resulting from the three largestprivate hospital operators was between 155 million and 174 million per yearbetween 2009 and 2011, which was equivalent to around 10 per cent of the totalprivate revenues of these firms (BMI, HCA and Spire). We considered that thisrepresented a conservative estimate of the consumer detriment.RemediesSummary72. To address the AECs we identified, we decided to implement a remedies packagecomprising four elements:(a) The divestiture by HCA of either the London Bridge and the Princess Gracehospitals or the Wellington hospital including the Wellington Hospital PlatinumMedical Centre (PMC).(b) Measures to ensure that arrangements between NHS trusts and private hospitaloperators to operate or manage a PPU will be capable of review by the CMA.The CMA will be able to prohibit arrangements which it decides significantlylessen competition in the relevant local area.(c) A restriction or ban on certain benefits and incentive schemes provided byprivatehospital operators to clinicians.(d) A combination of measures to improve the public availability of informationonconsultant fees and of information on the performance of consultants and privatehospitals.Remedies not pursued73. We decided not to pursue the following remedies:(a) Divestment of any private healthcare facilities belonging to private hospitaloperators other than HCA.(b) Constraints on contract terms between insurers and private hospital operators.(c) Price controls.(d) Other measures proposed by parties.Divestiture74. Our divestiture remedy will introduce greater rivalry in central London onprice,quality and range. It will require HCA to divest either the London Bridge and PrincessGrace hospitals or the Wellington hospital including PMC (the divestment package).We considered that divestment of either elements of the divestment package willresult in lower prices together with the maintenance or improvement of standardsatthese facilities given the importance of high-quality care in attracting and retainingcorporate clients, patients and consultants.1375. HCA will be able to choose which of the alternative elements of the packageto divestand will be required to confirm its choice to the CMA by a specified date. We willrequire that an effective divestiture process takes place which protects the com

petitive potential of the divestiture package before disposal and which enables asuitable purchaser or purchasers to be secured in an acceptable time frame whilst,subject to these requirements, enabling HCA to achieve a fair market value fromthesale. Suitable purchasers will be independent of HCA, must not raise furthercompetitive or regulatory concerns and must have appropriate financial resources,expertise, assets and business plans to enable the divested hospital(s) to competeeffectively in the central London market.76. We considered that it would be appropriate to adopt the following measurestoensure an effective divestiture process:(a) Accept undertakings from, or implement an order on, HCA which imposes a dutyon HCA to maintain the divestment package in good order and not to underminethe competitive position of any of the facilities in the divestment package. Inparticular, we require a commitment from HCA not to encourage or induceconsultants or key nursing, technical or other staff currently practising oremployed at the hospitals in the divestment package to move their practise (oremployment) to HCAs retained facilities.(b) Require HCA to appoint a monitoring trustee, paid for by HCA but approved byand reporting to the CMA in accordance with a mandate approved by the CMA, tomonitor HCAs compliance with the undertakings or order.(c) Require the relevant insurers to roll over their existing contract terms with thedivested hospital(s) for a period of 18 months from the date of divestiture, whilstpermitting a shorter period by mutual agreement.(d) Specify a sufficient but not excessive time frame for an orderly divestitureprocess to enable a suitable purchaser to be secured in an acceptable time framewhilst enabling HCA to achieve an appropriate fair market value from the sale.77. If HCA has not entered into a binding agreement to sell the selected elements of theHCA divestiture package to a suitable purchaser by the end of the specifieddivestiture period, the CMA will have the power to appoint an independent divestituretrustee to dispose of either elements of the divestment package within a furtherspecified period to a suitable purchaser for the best terms available in the marketcircumstances but without a reserve price.Review of PPU arrangements with private hospital operators78. This remedy will address high barriers to entry and expansion and weak competitiveconstraints in many local markets including in central London. There will be noobligation to notify PPU arrangements, but where the CMA has concerns aboutarrangements between NHS Trusts and private hospital operators to operate ormanage a PPU, they will be subject to CMA review. The CMA will prohibit thosearrangements which the CMA decides will significantly lessen competition in therelevant local area, or in exceptional circumstances take other steps, such asaccepting undertakings, as appropriate. Such a review will potentially open up localmarkets by enabling alternative providers to enter or expand in areas in whichincumbents face weak competitive constraints.

14Ban or restrictions on certain benefits and incentive schemes79. The aim of this remedy is to prevent distortion of competition between privatehospital operators by restricting and/or making more transparent the means by whichprivate hospital operators induce referrals by providing benefits and/or incentiveschemes to referring clinicians. This remedy will:(a) prohibit private hospital operators from procuring clinicians to give preference totheir facilities by offering inducements (and prohibit clinicians from acceptingsuchinducements) in the form of low-value direct incentives other than: (i) servicesintended to ensure clinical safety; (ii) basic workplace amenities; (iii) generalmarketing of the facility; and (iv) corporate hospitality which is proportionateandnot linked to referrals;(b) require private hospital operators to disclose the types of service fallingwithinexemptions (i) to (iii) that the provide to clinicians generally;(c) require a private hospital group providing goods or services of higher value to aclinician to:(i) charge the clinician the market value of the goods or services;(ii) allocate the relevant goods or services without giving preference; and(iii) disclose on the private hospital operators website for the relevant facilityeach service and the price charged within six months of the date of therelevant order;(d) prohibit any scheme operated by a private hospital operator, whether contractualor otherwise, which provides an inducement to, or creates an obligation on, aclinician to treat or refer patients for tests at any of its facilities; and(e) place the following conditions on equity participations held directly or indirectly byclinicians in either private hospitals or joint ventures involving companies whichown or operate a private hospital:(i) clinicians must pay the full market value for the stake;(ii) if the equity participation is a stake in a private facility or a joint venture inwhich the relevant private hospital operator also has a stake, the stake of theclinician must be limited to 5 per cent per clinician;(iii) the equity stake must not be linked to any requirement on the clinician,whether express or implied, to refer patients to the relevant facility or conducta minimum percentage of private practice at that facility or practice at thathospital for a minimum period or commit to providing a given level of use ofparticular equipment; and(iv) any dividends or profit shares must be distributed pro rata to shareholdersinaccordance with their stake.80. Any scheme which does not comply with these conditions must be amended orterminated within six months of the date of the relevant order (other than thosenotcomplying with 77(e)(i) where shares have been granted prior to the date of ourfinal

order)). The CMA will review this remedy within three years of the date of therelevant order and the CMA will monitor and enforce compliance with this remedy.15Providing information81. These measures comprise a package that will make it easier for patients, insurers,GPs and consultants to assess a private healthcare facility or consultants suitabilityin terms of quality and price. This will facilitate patient choice on the basisof qualityand price thus rewarding better performing facilities and consultants and willstimulate private healthcare facilities providing inpatient and day-case services andconsultants to compete for patients on the basis of the publication of performancedata based on objective quality criteria.82. Our measures will require that operators of private healthcare facilities providinginpatient and day-case services to provide patient episode data for all patientstreated at their facilities to an independent information organization. The CMAwillspecify the nature and format of the information to be supplied to the independentinformation organization and to be published. Publication will be made via a websiteoperated and maintained by the information organization in a format that permitspatients to search and compare results easily. Insurers will be required to includestandard wording in correspondence with customers on taking out or renewingpolicies informing them that they will be able to obtain quality information onconsultants and hospitals from the information organizations website.83. We propose that the CMA review the remedy by April 2019 to consider whethertheinformation requirements have been met, whether the remedy is effective inenhancing the availability of performance information for patients and whether anyadjustments or refinements are needed to the information published.84. We will also require all operators of private healthcare facilities to require all consultants practising at their facilities, as a condition of granting practising privileges, toprovide fee information to patients using standard letter templates provided bytheoperator. The order will require both the facility operators and consultants tocomplywith this requirement and implement it within six months of our final report. Wewillalso require that, by December 2016, consultants submit and maintain up-to-dateinformation on their fees to an independent information organization for publicationvia its website.Effectiveness and proportionality of remedies85. Each of the remedy measures that form part of our package of remedies is capableof effective implementation, monitoring and enforcement. We did not consider thatany of our remedies would, in isolation, address the AECs comprehensively but th

atin combination will increase competition between providers of privately-fundedhealthcare and this increased competition will benefit patients. For example, ourinformation remedies work together with our divestment remedy by providing patientsand others involved in referral decisions with adequate information on performanceand price to enable patients and others effectively to weigh price and, for example,travel time, against quality. The PPU remedy will assist in increasing the competitiveconstraints on incumbent private hospital operators in any local areas where anNHSTrust wishes to partner with a private hospital operator to operate a PPU. Without theremedy on clinician incentives, the other remedies might be frustrated through theuse of incentives to influence clinician referrals.86. We considered a number of alternatives but were unable to identify a less onerouspackage of measures that would be as effective. We concluded that the remediespackage would not result in any material reduction in relevant customer benefitsthatmight accrue from any of the features that give rise to the AECs. In relation toproportionality, we concluded that having evaluated the prospective benefits and16costs of the measures, the beneficial effects of the package of remedies are likelysignificantly to outweigh the costs of the measures.87. We therefore concluded that this package of remedies represents as comprehensivea solution as is reasonable and practicable for the AECs and resulting customerdetriment that we found.1-1Findings1. The reference and our statutory task1.1. On 4 April 2012, the OFT made a market investigation reference to the CC undersections 131 and 133 of the Act regarding the supply or acquisition of privatelyfunded healthcare services in the UK.1This document, together with its appendices,constitutes our final report.1.2. On 1 April 2014 the remaining functions of the CC in relation to the reference weretransferred to the Competition and Markets Authority (CMA), under Schedule 5 totheEnterprise and Regulatory Reform Act 2013 and the Schedule to the Enterprise andRegulatory Reform Act 2013 (Commencement No. 6, Transitional Provisions andSavings) Order 2014 (the Order). Accordingly this report is now published by theCMA in exercise of its functions under section 136(1) of the Enterprise Act 2002,read with paragraph 2 of the Schedule to the Order.

1.3. This report sets out our findings based on the evidence that we reviewed and theanalysis we carried out during the course of the inquiry. The inquiry group, nowacting on behalf of the CMA, is responsible for the remaining stages of the inquiryincluding the implementation of remedies.1.4. Section 134(1) of the Act requires us to decide whether any feature, or combinationof features, of each relevant market prevents, restricts or distorts competitioninconnection with the supply or acquisition of any goods or services in the UnitedKingdom or a part of the United Kingdom. If the CC decides that there is such afeature or combination of features, then there is an AEC.21.5. Under section 131(2) of the 2002 Act, a feature of the market refers to:(a) the structure of the market concerned or any aspect of that structure;(b) any conduct (whether or not in the market concerned) of one or more than oneperson who supplies or acquires goods or services in the market concerned; or(c) any conduct relating to the market concerned of customers of any person whosupplies or acquires goods or services.1.6. If the CC finds that there is an AEC, it is required under section 134(4)of the Act todecide whether action should be taken by it, or whether it should recommend thetaking of action by others, for the purpose of remedying, mitigating or preventing theAEC, or any detrimental effect on customers3so far as it has resulted from, or maybe expected to result from, the AEC; and, if so, what action should be taken andwhatis to be remedied, mitigated or prevented. The Act requires the CC to achieve ascomprehensive a solution as is reasonable and practicable to the AEC and anydetrimental effects on customers so far resulting from the AEC.4In considering1The terms of reference for our investigation are set out in Appendix 1.1.2Section 134(2) of the Act.3A detrimental effect on customers is defined in section 134(5) of the Act as one taking the form of: (a) higher prices, lowerquality or less choice of goods or services in any market in the UK (whether ornot the market to which the feature or featuresconcerned relate); or (b) less innovation in relation to such goods or services.4Section 134(6) of the Act.1-2remedies, the CC may take into account any relevant consumer benefits, as definedin the Act, arising from the feature or features of the market.5

1.7. Our terms of reference (see Appendix 1.1) state that for the purpose of the reference,privately-funded healthcare services are services provided to patients via privatefacilities/clinics including private patient units (PPUs), through the servicesofconsultants, medical and clinical professionals who work within those facilities.1.8. This section provides the background to the reference; an overview of theconduct ofthe investigation, and the structure of the remainder of the report.Background to the referenceThe OFTs reference decision1.9. The OFT commenced a market study of privately-funded healthcare in March 2011.The OFT published a consultation document on a proposal to refer the market inDecember 2011. Following that consultation, it decided to refer the market to the CC,having identified a number of features. These features appeared to result in reducedpatient choice in privately-funded healthcare services and restricted competitionbetween private healthcare providers, the expected outcome of which might behigher prices and lower quality of services for patients, and a stifling of innovation inthe privately-funded healthcare market.1.10. The OFT identified the following features which might adversely affect competition:6 information asymmetries resulting from a shortage of accessible, standardizedand comparable information provided to patients and their advisers in relation toprivate healthcare providers; concentration in the provision of privately-funded healthcare at the national leveland at the local level areas of extreme concentration; concentration of anaesthetists as a result of the prevalence of anaesthetists whoare part of groups; and barriers to entry as a result of conditions imposed by larger hospital operators aspart of recognition of their facilities on PMI networks, the need for wide PMInetwork recognition and the consultant drag effect, incentives paid by hospitaloperators to consultants and possibly financial incentives paid by hospital operators to GPs.1.11. The OFT also made two recommendations to other organizations to address twoissues that arose during the course of its market study. First, responding to concernsby consumers as to the level of extra payments sought from some consultants thatare not covered under their PMI (shortfalls), the OFT engaged with the FinancialServices Authority (FSA) now the Financial Conduct Authority (FCA) on this issue.The CC understands that the Association of British Insurers (ABI) has confirmedto

the FSA, on behalf of its members, that PMI providers will either cover the total costsso that no shortfall arises or will make clear the possibility of a shortfall payment as aresult of the limits which apply to the amount payable under their policies at point ofsale and claim. Secondly, having noted the development of partnership arrange5Section 134(7) of the Act.6http://www.oft.gov.uk/shared_oft/market-studies/OFT1412.pdf.1-3ments between PPUs and hospital operators, the OFT made a recommendation tothe NHS and foundation trusts that when seeking to agree partnership arrangements,they should consider that the PPUs may be at a potential competitive advantage inthe privately-funded healthcare market due to any implicit, non-market benefitstheycould receive from their connections to the NHS.Conduct of the investigation1.12. The following paragraphs provide an overview of the process we followed in ourinvestigation and how we analysed the evidence, data and information we received.Further details can be found in Appendix 1.1.1.13. We published an issues statement on 22 June 2012 taking into account theOFTsmarket study report and the initial information and evidence we had received inresponse to our initial requests for information and submissions. The issuesstatement identified seven hypotheses or ToHs to help frame the conduct of theinvestigation. In the issues statement we recognized that the industry involvesavariety of suppliers and acquirers of services within the reference market includinghospital operators, consultants, GPs, other medical and clinical professionals,theNHS and PMIs. However, whilst we would be investigating the various facets of theindustry, including how the conduct of PMIs affects the provision of privately-fundedhealthcare, we did not investigate how competition functions in the PMI market,asthis market was not referred by the OFT for investigation.7Similarly, healthcareservices funded by the NHS, whether carried out in the NHS or privately-operatedfacilities, were also outside our terms of reference.81.14. We also identified at an early stage of the investigation that the role of pharmaceutical companies and equipment suppliers would not form part of the investigation.9Inpreparing our extensive questionnaires to parties, we decided to focus the inves

tigation on privately-funded acute healthcare services provided primarily in privatehospitals, as these were the focus of the OFTs market study and of submissionsreceived from parties in the earlier phases of the investigation. We also decided notto consider in detail privately-funded healthcare services that are offered by differentproviders to those that provide private hospital-based acute services where thenature of demand is different and where such services are not covered by insurance.The following treatments were not analysed in detail as a result: Elective cosmetic surgery: meaning those treatments done purely electively,including minor laser eye and skin treatments, although cosmetic proceduresfollowing trauma were included. Standard maternity treatments: meaning maternity-only services by specialistproviders, although in some parts of or analyses we included emergency/nonroutine acute private hospital maternity treatments. Fertility and pregnancy termination treatments. Mental health treatments. Dentistry unless provided within an acute private hospital facility.7Issues statement, paragraph 3.8ibid, paragraph 3.9ibid, footnote 7.1-4 Specialist outpatient services such as physiotherapy and nutrition.101.15. We held 11 site visits, seven to private hospitals and four to the premises of PMIs.Between February and April 2013, we held 17 hearings with interested parties. Wehave had extensive contact with and/or received submissions from a large numberofinterested parties including hospital operators, consultants, GPs, trade andprofessional organizations, government departments, agencies and regulators, PMIs,PMI policyholders and patients.1.16. On 28 February 2013, we published an annotated issues statement which setout ourthinking based on the evidence received and the analyses we had undertaken by thattime. The statement highlighted those issues which we considered would be thefocus of the investigation going forward and those issues which were of lesserconcern. The annotated issues statement contained a number of working papers asappendices and we published further working papers between February and June2013.1.17. We notified our provisional findings on 28 August and published our report in full on2 September. We also published our Notice of possible remedies on 28 August. Anumber of submissions commenting on both reports were received and further hearings were also held with 11 parties to gain a greater understanding of their views.1.18. On 16 January 2014 we published the summary of our provisional decision on

remedies. The full report was published on 21 January 2014. We held four furtherhearings with parties following publication of our provisional decision on remedies.1.19. During our investigation we published a considerable number of documentson theCC website. These include non-confidential versions of parties written submissions,non-confidential versions of summaries of hearings held with a number of parties,parties responses to our issues statement, annotated issues statement, workingpapers, provisional findings and provisional decision on remedies. Further details canbe found in Appendix 1.1.Structure of the final report1.20. This document, together with its appendices, constitutes our final reportwhich setsout our findings based on our analysis of the evidence received during the course ofthe investigation. It refers, where appropriate, to material published separately on theCC website. The report, however, is self-contained and is designed to provide allmaterial necessary for an understanding of our findings.1.21. The remainder of this report is set out as follows: Section 2 describes the background to the industry including relevant policyframeworks and regulation of the industry. Section 3 provides information on the main hospital operators, on clinicians andPMI companies active in the provision of privately-funded healthcare. Section 4 sets out the framework for our competitive assessment. Section 5 considers market definition.10Annotated issues statement, paragraph 4.1-5 Section 6 contains our analysis and assessment of competition in the supply ofprivately-funded healthcare by hospital operators. Section 7 contains our analysis and assessment of competition in the supply ofprivately-funded healthcare by consultants. Section 8 sets out our analysis and assessment of the issues relating to certainarrangements between hospital operators and clinicians. Section 9 sets out our analysis and assessment of the issues relating to theavailability of information and information asymmetries. Section 10 presents our findings in relation to the statutory questions that wearerequired to answer. Section 11 sets out the remedy measures we have decided to take forward. Section 12 sets out the remedy measures we have decided against takingforward. Section 13 contains our assessment of the effectiveness and proportionality of,and our conclusions on, the package of remedies.1.22. Appendices supporting each section are numbered according to the first sectionwhere they are relevant and are listed in full in the table of contents at the beginningof this report.

2-12. Industry backgroundIntroduction2.1 In this section, we summarize the nature of privately-funded healthcare, outlineindustry trends, explain how privately-funded healthcare services are provided andconsumed, and describe the regulatory regime for this industry.2.2 We begin with a high-level overview of private healthcare provision in theUK,including some of the main trends that have emerged.The nature of private healthcareBackground2.3 Privately-funded healthcare services comprise a variety of medical treatments thatare paid for directly by individuals or through PMIs.11For the purposes of this investigation, such services have been defined as services provided to patients by privatehospitals and other facilities, including PPUs, through the services of consultants,and medical and clinical professionals who work within these facilities.122.4 Of the estimated 548 hospitals operating in the private healthcare sector in the UK asat October 2013, 465 were owned and managed by private companies (led by themain hospital groups), and 83 were dedicated PPUs13within NHS hospitals14(ofwhich 74 are managed in-house by the NHS and nine are managed by privatehospital groups).15In addition, there are between 500 and 600 medical clinics whichare not registered as hospitals but which carry out some private healthcaretreatments alongside their core general medical services.16Private hospitals2.5 Private hospitals typically provide a broad range of healthcare services topatients,covering the majority of medical specialties.17Some private hospitals also provide afull range of oncology treatment.2.6 There are a number of differences between the range of services provided byprivatehospitals in the UK as compared with the NHS, including:(a) private hospitals generally do not offer accident and emergency (or trauma)services which are, in any case, not generally covered by PMI policies, but ratherfocus on elective/planned treatments, both medical and surgical;(b) many private hospitals do not have intensive care or high dependency units,though, as we show later, some hospital groups have focused on procedureswhich require level 3 intensive care facilities; and

11They may also be paid for by overseas self-payers or by patients funded by third parties such as embassies.12OFT Private Healthcare Market Study, 2.14, www.oft.gov.uk/shared_oft/market-studies/OFT1412.pdf.13In this report, we refer to all facilities within NHS hospitals for privately-funded patients as PPUs.14Laing & Buisson, Private Acute Medical Care 2013, pp 9 & 10.15ibid p 98.16ibid p10.17See paragraph 3.67.2-2(c) private hospitals offer a range of treatments that may not generally be funded bythe NHS or which may entail a long wait for treatment, including cosmetic andbariatric surgery and IVF treatments.Clinicians2.7 As at 31 December 2012, there were 252,553 registered and licensed doctorsacrossEngland, Scotland, Wales and Northern Ireland.18The majority of consultantsproviding privately-funded healthcare services also hold an NHS contractvery fewpractise exclusively in the private sector. Both the number of consultants and thenumber of GPs has been increasing over at least the last decade, with the numberofGPs growing by about 25 per cent and the number of consultants growing by about52 per cent since 2001.19Trends in private healthcareTrends in the NHS2.8 The overwhelming majority of hospital admissions in the UK are to NHS hospitals. In2012/13, there were around 8.77 million waiting list and planned admissions forsurgery to NHS hospitals in the UK. This compares with an estimated 1.61 millionprivately-funded admissions for surgical procedures in UK private hospitals at mid2013.202.9 Over the last decade, major changes have taken place in the NHS. Improvements inthe fabric of NHS hospitals and, in particular, reductions in the length of waiting listsfor surgery in the mid-2000s increased the degree of competitive tension betweenprivate healthcare and its free rival, and this was further reinforced by the economicdownturn in 2008.

2.10 In England, the Darzi reforms21have sought to provide patients and the public withmore information and greater choice, including the possibility of being treatedas anNHS patient at a private hospital.22The NHS was funding the treatment of NHSpatients at private hospitals prior to these reforms, but growth in NHS spendingwithprivate hospitals has been such that the NHS is now a customer of the private acutehealthcare sector with a budget equivalent in size to that of some major PMIs.2.11 There are differences in policy across the nations regarding the use of private facilities for treating NHS patients. In Scotland, there is no longer any central procurement of private hospital services, although NHS authorities can still procure privateservices locally on an ad hoc basis to meet their waiting time targets or in caseswhere local services become unavailable for a period. Current Scottish policy isthatall healthcare spending should first be channelled through the NHS, with the aimofimproving quality and where the use of the private sector is marginal. SimilarlyinWales, commissioning of private providers to carry out NHS work is very low andNHS Wales intention is that it continues to decrease. Only in exceptional cases,primarily in the sphere of mental health and access/waiting time targets, wouldtheNHS Local Health Boards commission private providers to provide NHS healthcare.18GMC, The State of Medical Education and Practice in the UK 2013, p17.19ibid, p27.20Laing & Buisson, Private Acute Medical Care 2013, p123.21Department of Health, High Quality Care for All, 2008.22Since April 2009, patients have had the legal right to be referred to a hospital of their choice provided it meets NHS cost andquality requirements.2-3Trends in spending2.12 In 2012, the UK market for privately-funded healthcare services was worthanestimated 6.71 billion.23In real terms, the market has been flat since 2005 (up only0.6 per cent in real terms between 2006 and 2012 inclusive).24However, privatehospitals and clinics have seen their revenues increase as a result of wider useofprivate sector capacity by the NHS.25

2.13 Total revenue earned by private hospitals in the UK was approximately 4.4 billion in2012, 70 per cent of which was generated by the five largest private hospital groups(see Table 2.1).TABLE 2.1 Top ten private hospital operators by acute medical/surgical revenue, 2005 to 2012Provider and range2006m2007m2008m2009m2010m2011m2012m2012share%1. General Healthcare Group 644.0 665.1 746.2 807.4 836.2 885.5 877.5 20.0Netcare Healthcare UK 23.0 23.8 26.4 24.1 19.0 2.2 1.0 0.02. Spire Healthcare 420.6 449.3 564.1 620.0 643.0 674.0 739.0 16.93. HCA 331.3 368.2 419.7 448.0 490.3 585.9 662.0 15.14. Nuffield Health 448.5 455.4 420.2 389.2 391.6 414.2 450.6 10.35. Ramsay Health Care UK 227.7 251.9 273.7 322.2 351.4 357.7 363.8 8.3Top five providers 2,095 2,214 2,450 2,611 2,732 2,920 3,094 70.66. Care UK 32.4 42.3 121.1 137.9 148.3 150.0 145.0 3.3Partnership Health Group 32.0 54.4 - - - - - 7. The London Clinic 75.0 81.3 94.1 102.5 114.7 124.3 131.1 3.08. Aspen 52.1 59.0 65.8 67.2 66.4 68.7 89.0 2.09. Bupas Cromwell Hospital 65.5 61.9 63.6 64.7 67.3 73.0 83.2 1.910. Circle 13.4 24.2 35.0 63.1 76.2 74.6 73.2 1.7Top ten providers 2,365 2,537 2,830 3,046 3,205 3,411 3,616 82.5Other providers 604.6 669.9 672.4 692.6 717.1 745.4 769.6 17.5All private hospital operators 2,970 3,207 3,502 3,739 3,922 4,156 4,385100.0Source: Laing and Buisson Private Acute Medical Care, 2013, p46.2.14 Since 2004, when it began using the private sector to clear waiting lists,NHSEnglands spending on privately-funded healthcare services has more than quadrupled in real terms and, in 2012, its spend was 1.195 billion.26In 2011/12, nearly

20 per cent of NHS expenditure on hip and knee replacements was with privatehospitals and clinics.27As we show when we describe private healthcare provision inmore detail, most hospital groups, but Ramsay in particular, have benefited fromthegrowth of NHS expenditure on private treatment.282.15 Not all private hospitals have seen winning higher-volume, lower-acuity NHS work asa key part of their business strategy. While representing a threat to private hospitalsin one respect, the increasing cost and sophistication of medical technology used todiagnose, monitor and treat patients has been identified as a major opportunitybycertain hospital groups. They have chosen to develop a strategy focused on highvalue, high-acuity medical specialties, which require heavy expenditure to enterandexpand into. Our case study on The London Clinics (TLCs) Cancer Centre (see23Laing & Buisson, Private Acute Medical Care 2013, pi.24ibid pi.25ibid pi26ibid, p19.27Public Payment and Private Provision, Nuffield Trust and Institute for Fiscal Studies, 2013. However, the authors suggest thatthis may include some patient substitution from the private sector to the NHS.28See paragraph 3.33.2-4Appendix 6.2) illustrates the willingness of some providers, particularly TLC andHCA, to make very significant investments in equipment and facilities to try andsecure an increased share of certain segments of the healthcare market, particularlyoncology.Trends in delivery2.16 Trends relevant to the delivery of privately-funded healthcare services include adeclining proportion of patients being admitted to private hospitals as inpatients andshorter hospital stays for those that are.2.17 NHS hospitals have sought to reduce costs by treating more patients on a daypatient basis and, where they are admitted as inpatients, reducing their lengthofstay. The average length of stay in NHS hospitals has fallen by a third in the last tenyears29through the adoption of, for example, less invasive surgical techniques for

which recovery periods are shorter, and the adoption of procedures that can beundertaken on a day-patient basis. The number of day-patient-only beds in the NHSalmost doubled between 2002/03 and 2012/13,30and figures available (for April2013) indicate that just over 80 per cent of NHS elective admissions in Englandareon a day-patient basis.31Outpatient treatments have also increased across the UK,though this has occurred more noticeably in England than in Scotland, Wales orNorthern Ireland.322.18 The trend is similar in the private healthcare sector but less pronounced.Betweenthe mid-1990s and mid-2000s overnight bed capacity in the sector gradually contracted by around a fifth to a low of 9,250 at 2004.33In 2012/13, overnight bedcapacity remained largely static on previous years, with 9,341 beds available atthe201 private hospitals offering overnight beds.34Day-patient admissions by the mainhospital groups represented 68 per cent of all admissions in 2011 (see Figure 2.1),and the majority (73 per cent) of the 1.61 million patient admissions for surgicalprocedures in the first half of 2013 were for day-patient procedures.35

29Length of stay in hospital in England, Nuffield Trust.30www.nuffieldtrust.org.uk/data-and-charts/day-only-hospital-beds-england.31www.england.nhs.uk/statistics/wp-content/uploads/sites/2/2013/04/MAR-April-13-SPN-v2-89036.pdf.32www.nuffieldtrust.org.uk/data-and-charts/outpatient-appointments-uk.33Laing & Buisson Private Acute Medical Care 2013, p119.34ibid pii.35ibid p10.2-5FIGURE 2.1Day-patient and inpatient admissions at the major hospital groups,2006 to 2011Source: BMI, HCA, Nuffield, Ramsay, Spire.Spending in private healthcare2.19 We now look at where the money is being spent on privately-funded healthcareservices, and by whom.

Expenditure on privately-funded healthcare services2.20 Roughly two-thirds of expenditure on privately-funded healthcare servicesis onprivate hospitals. The next largest category of expenditure is specialists fees and thethird largest is the NHS (money spent treating private patients at NHS facilities suchas PPUs). The breakdown of expenditure by segment is shown in Figure 2.2.01020304050607080901002006 2007 2008 2009 2010 2011Admissions inpatientAdmissions day patientpercent2-6FIGURE 2.2Private healthcarerevenue and share by sector, 2012Source: Laing & Buisson, Private Acute Medical Care 2013, p3.2.21 Since 2004, the share of private healthcare revenue earned by the NHS throughprivate beds and PPUs has fallen slightly, while the share earned by hospitals andconsultants has increased (see Figure 2.3).FIGURE 2.3Trends in private healthcare revenue shares, 2004 to 2013Source: Laing & Buisson, Private Acute Medical Care 2013, p4. Note that 2013 figures represent aprojected value.2.22 Revenue earned from private hospital charges grew much more rapidly than revenuefrom consultants fees (see Figure 2.4).65%4,352m24%1,637m8%504m3%220mPrivate hospitals and clinicsSpecialist feesNHS private patients

Other020406080100120OtherNHS private patientsSpecialist feesPrivate hospitals and clinicspercent2-7FIGURE 2.4Hospital revenue and specialist fees, 2004 to 2013Source: Laing & Buisson, Private Acute Medical Care 2013, p4. Note that 2013 figuresrepresent a projected value.2.23 This was despite the low growth of private expenditure on healthcare and thereduction in episode costs that might have been expected to flow from the increase inthe proportion of day-patient, rather than inpatient, admissions to private hospitals.NHS expenditure on privately-funded healthcare services2.24 As noted above in paragraph 2.12, private hospital revenues were being driven to agreater or lesser extent, depending on the operator, by increased volumes of NHSwork and in other cases, as discussed in paragraph 2.15, by hospitals focusing onhigh-acuity treatments.2.25 In the 2012/13 financial year, NHS England generated approximately 500 million inrevenue from the provision of privately-funded healthcare services (contributing8 percent of total private healthcare industry revenue), either in dedicated PPUs orinprivate beds in NHS hospitals.36Around 96 per cent of total UK NHS private patientrevenues are generated in England while 1.6 per cent of revenues are generated inWales, 1.2 per cent in Northern Ireland and 0.9 per cent in Scotland.37The majorityof PPU capacity is located in London and south-east England.38Again, the differences in the nations may be explained, in part, by the different policies in place: in

Wales, for example, there are very few PPUs, and while it is recognized that forsome procedures there is scope for the local health boards to offer these on a private36Laing & Buisson, Private Acute Medical Care 2013, p93.37ibid p96.38Around 53 per cent of PPU beds are in London and 10 per cent in the southern Home Counties (Laing & Buisson PrivateAcute Medical Care 2013, p96).05001,0001,5002,0002,5003,0003,5004,0004,5005,0002004 2005 2006 2007 2008 2009 2010 2011 2012 2013Private hospitals and clinics Specialist feesmillion2-8basis, it is critical that such private provision does not impact negatively onNHSprovision.2.26 The top ten NHS Trusts by private patient revenue are shown in Table 2.2.TABLE 2.2 Top ten private patient earning NHS Trusts in 2012/13 and 2011/12Private patientrevenue 2012/13Private patientrevenue2011/12Annual growth2011/122012/13Share of total NHSprivate patient revenue2012/13m m % %1.2.3.4.5.6.7.

Royal Marsden FT 59.8 51.1 17.0 11.9Great Ormond Street FT 41.3 28.2 46.7 8.2Imperial College Healthcare 30.5 28.6 6.6 6.0Royal Brompton & Harefield FT 28.8 29.1 1.1 5.7Royal Free Hampstead 21.8 21.2 2.5 4.3Moorfields Eye Hospital FT 19.2 19.2 0.0 3.8University College London FT 18.3 13.4 37.0 3.6

8. Guys & St Thomas FT 17.7 21.2 16.8 3.59. Kings College Hospital FT 13.2 10.7 22.8 2.610. Chelsea & Westminster FT 10.9 10.5 4.5 2.2Top 10 Trusts 261.5 233.2 12.1 51.8Other Trusts 242.9 248.9 7.5 48.2Total NHS (UK) 504.4 482.1 4.6 100.0Source: Laing & Buisson, Private Acute Medical Care 2013, p97.2.27 As can be seen, the average rate of revenue growth among the top ten PPUsis high(12.1 per cent). Some individual PPUs are achieving growth rates significantly higherthan this, for example, Great Ormond Street has experienced growth around threetimes the top-ten average. It is also notable that the top ten PPUs comprised 51.8 percent of the total private patient revenue earned by the NHS in 2012/13, while all otherPPUs combined made up 48.2 per cent.2.28 Of the 83 dedicated PPUs in the UK, 74 are managed in-house by the NHS andnineare managed by private hospital groups. HCA manages the Harley Street atUniversity College Hospital, London, the Harley Street at Queens, Romford, TheChristie Clinic in Manchester; BMI operates the Coombe Wing at Kingston Hospital;Spire manages the Royal Orthopaedic Hospital Trusts PPU at Stanmore; Ramsaymanages the Orwell Cardiothoracic PPU at Basildon University Hospital; NovaHealthcare runs a PPU at St James Institute of Oncology in Leeds; Regents ParkHeart Clinics operates the Cambridge Heart Clinic at Addenbrooke Hospital andMater Private started managing a new private centre in Wirral in 2013 as part ofajoint venture (JV) with the Clatterbridge Cancer Centre NHS Foundation Trust. Inaddition, East Kent Medical Servicesrecently reacquired by East Kent HospitalsUniversity NHS Foundation Trustmanages the Spencer Wings at Ashford andMargate,39and HCA will operate and manage a new PPU at Guys and St Thomas.2.29 Industry observers expect PPU revenue to grow in the next three to five years, nowthat the limit on the proportion of Foundation Trusts gross income that can be earnedfrom private healthcare has been raised to 49 per cent, though it is not anticipatedthat any Foundation Trust will reach this level of private patient income.40There isevidence that the leading PPUs, for example the Royal Marsden, Great OrmondStreet, Moorfields Eye Hospital and Chelsea and Westminster NHS FoundationTrust, are gearing up for growth.41However, the degree to which any increase inPPU activity will constitute greater competition for private hospitals will be affected by39Laing & Buisson, Private Acute Medical Care 2013, p98.40ibid p104.

41ibid p105.2-9the number of Foundation Trusts which decide to expand in partnership with privatehospitals, if and with whom they partner, and on what terms, among other things.Purchasers of private healthcare2.30 Private hospitals have four main revenue sources: overseas patients, selfpaypatients, NHS-funded patients and, by far the largest category, patients with PMI. Weset out the value of these in Figure 2.5 and discuss each in turn.FIGURE 2.5Sources of funding of private acute healthcare at private hospitals, 2012Source: Laing & Buisson, Private Acute Medical Care, 2013, p13.2.31 The relative dependence of the main hospital groups on each of these sourcesvariessee Figure 2.6.FIGURE 2.6Hospital groups revenue sources, 2012[ ]Source: Parties and CC analysis.Overseas2.32 The overseas sector comprises overseas residents who come to the UK, in particularto central London, for medical treatment. This would include what is sometimesreferred to as the embassy sector, since the London embassy of the country concerned may be responsible for negotiating rates with hospitals, arranging treatment,and paying the fees involved. The size of this market segment was estimated at55.1%2,397.9m27.5%1,196.8m14.5%631.0m3%130.6mPrivate medical coverNHSSelf-payOverseas2-10128 million in 2012,42though information submitted by the parties suggested that itmay be worth somewhat more than this.Self-pay2.33 In 2012, the self-pay market was worth 629 million to private hospitals, and comprised non-cosmetic (420 million) and cosmetic treatments (209 million). In 2013,the value of the self-pay sector is expected to reach 650 million.432.34 The most significant drivers of the self-pay market appear to be the economic cycle/GDP growth, though industry commentators have pointed to a growth in self-paydemand from 2008 when the economy was contracting. This may have been related

to increased NHS waiting times, but also may have resulted from increasedmarketing of self-pay by hospital groups.44The NHS2.35 The second largest customer of private hospitals and the fastest-growing source ofrevenue for private healthcare services in the last ten years has been the NHS.Asdescribed in paragraph 2.14, the NHSs spending with private hospitals has morethan quadrupled in real terms since 2004. Just over a quarter of private hospitalsrevenue, on average, comes from the NHS45which is, therefore, a significantadditional revenue source as well as, to a much lesser extent, a competitor of theprivate hospital operators. As noted earlier, the growth of NHS revenue has, tosomeextent at least, sheltered private hospitals from the weak state of the privately paidfor healthcare sector.2.36 However, the amount of NHS work that hospital groups and individual hospitalsundertake varies quite considerably. HCA, for example, earns very little from treatingNHS patients, whereas almost [ ] of Ramsays admissions were NHS patients in2010/11. Ramsay accounted for 27.6 per cent of NHS-funded elective surgeryadmissions to private hospitals in 2011/12.46There is also geographic variation, asexplained in paragraph 2.11; the extent to which the NHS will fund the treatmentofNHS patients in private hospitals is much more common in England than in Scotlandor Wales, for example.PMI2.37 Payments from PMIs account for the largest source of funding for private hospitals,generating an estimated 2,397.9 million or 55.1 per cent of revenues in 201247(seeFigure 2.5). However, while there was positive real growth in 2008 and 2009,recessionary effects resulted in a contraction in payouts of about 0.4 per centin2012, following contractions of 3.1 per cent in 2011 and 2.8 per cent in 2010.482.38 The future of PMI spending on privately-funded healthcare services appearsmixed.There has been some improved demand for cover by employers in 2011 and 2012,which has resulted in some degree of market stability. There was an increase inspending by employers in 2012, however, companies are still likely to look for42Laing & Buisson, Private Acute Medical Care, 2013, p39.43ibid, p3144

ibid, pp32&33.45ibid, p18.46ibid, p22.47ibid, p1448ibid, p14.2-11savings where possible. Demand for individual policyholders continued to contract in2012 at 1.5 per cent, however, a deceleration in the rate of contraction suggests thatthe decline may soon level off. Overall, the longer-term prosperity of health cover isdependent on employers spending on health and wellness benefits overall and thereare opportunities and threats for medical cover in a more mixed, more competitive,healthcare economy.49The patient pathway2.39 Competition in the private healthcare sector can be characterized as a contest forcontrol of the patient pathway, since the destination of the patient determinestherecipient of the payment for the patients treatment. We now describe some of thedifferent pathways that a patient might follow to receive treatment.The GP2.40 The pathway to private healthcare for most people starts with a visit to aGP,50whomay be the patients NHS GP or a doctor whose services are provided by theiremployer. The GP will assess the patients condition and, if necessary, recommendthat they see a specialist in the treatment of the condition that the GP has diagnosed(ie a consultant).2.41 If the patient wishes to be treated privately, unless the condition is particularly rare orthe treatment specialized, the GP will probably recommend a consultant51who practises locally.52Once the patient has decided which consultant to see, either the GPwill contact the consultant, setting out the preliminary diagnosis and reasons for thereferral, or will give the patient a letter of referral.2.42 GPs in our survey told us that patients were more likely to know which hospital theywanted to use (44 per cent) than which consultant (28 per cent). This would beconsistent with patients having some knowledge of local hospitals, but might alsoindicate that choice may be limited for many patients. It would also suggest thatpatients place greater reliance on GPs for advice on consultants than they do for

advice on choice of hospital.2.43 Patients in our survey said that they used their GP more than any other source ofinformation regarding the choice of a consultant. It was especially the case forselfpay patients that they also researched both consultants and hospitals online. 16percent of patients said that they would have liked some further information, althoughcould not identify the gaps in their information specifically.2.44 Nearly half (47 per cent) of the GPs in our survey, on whom consumers clearly relyquite heavily for advice, felt that they lacked information as regards the feeschargedby consultants, the length of time their patient would have to wait for an appointmentand whether they were recognized by the patients PMI. Just over a quarter of GPs49ibid, p18.50In our patient survey, 60 per cent of respondents said that they had been referred by a GP. Other pathways included areferral by one consultant to another or self-referral or referral from a PMI to, for example, a physiotherapist.51In our patient survey, 50 per cent of respondents said that their GP suggesteda particular consultant, 20 per cent said thatthe GP did not refer them to a named consultant and 20 per cent said that theirGP had suggested two or more consultants.52In our patient survey, the average travel time to a hospital being attended wasjust over 30 minutes. However, around half ofall patients said that they would travel further if the GP recommended that theydid so or if it was the only way they could seethe consultant recommended. The proportion of those who felt their condition wassevere or affected their life who would bewilling to travel further was higher.2-12(26 per cent) felt they lacked information on consultants clinical expertise, thefactorthey considered most important in making a referral.Paying for privately-funded healthcare services2.45 Consumers wishing to receive private healthcare services may fund it in one of threeways:(a) they may pay for it themselves;(b) they may seek reimbursement from their PMI under a policy they have taken outthemselves; or(c) they may seek reimbursement from their PMI under an employers privatemedical cover scheme (see Appendix 2.1).2.46 If the consumer does not have private health cover at all, or if they do but the condition is not covered by their policy or has certain excesses under their policy,53theywill need to fund the treatment themselves if they wish to proceed. We refer to

thisform of funding as self-pay. A consumer may elect to pay privately for healthcareservices for a number of reasons. The treatment or procedure concerned may not becovered by their insurance policy or employers scheme, for example cosmetic orbariatric surgery, or it may not be available at all through the NHS or only availableafter a long wait, for example IVF treatment or non-urgent surgery such as herniarepair. Most PMIs and hospital groups offer package pricing to self-pay patients. Thismeans that even if a patient is not covered by a PMI policy, they may be able toaccess private treatment by buying a treatment package or paying a one-off price,which may include, for example, coverage for hospital charges and drugs for inpatients, a private room, nursing and medical care, and consultant and consultationfees. Package pricing usually requires a patient to pay in advance.542.47 If, as is more commonly the case, the consumer does have private cover, they maynext contact their PMI or the organization which administers their employers scheme(typically a PMI) to obtain the PMIs authorization to proceed with an initial, outpatientconsultation.2.48 PMIs tend to have fewer rules regarding outpatient consultations than forday-patientor inpatient treatment. They tend to recognize all or most private hospitals foroutpatient consultations or treatments and set annual outpatient consultation feemaxima rather than operating a procedure-based fee schedule as they do for daypatient or inpatient treatment.55However, depending on the PMI, the patient may beinformed at this stage that the consultant they are contemplating seeing may chargefees outside the PMIs fee maxima (a non-fee-assured consultant). If the patientprefers to see a non-fee-assured consultant, the PMI may inform them that they maybe responsible to pay a top-up fee (a fee over and above the PMIs reimbursementmaximum, which has been pre-agreed). PMIs policies on top-up fees are consideredin more detail in paragraphs 7.101 to 7.112.2.49 The BMA survey of consultants indicates that the average fee for an initial outpatientconsultation is around 170, with not much variation between specialties. However,

53Most policies and schemes, for example, do not cover purely cosmetic surgical procedures or assisted conception treatmentssuch as IVF.54www.netdoctor.co.uk/focus/selfpay/selfpay_pmi.htm.55Bupa, noting this, submitted that as a result, outpatient consultation fees had

risen faster than other consultant costs (Buparesponse to the issues statement, paragraph 6.79).2-13fees for an initial outpatient consultation vary regionally: the highest averagefee wasin London (200) and the lowest in Wales (123).56The consultantmaking the appointment2.50 The patient will then make an appointment to see the consultant (for the insuredpatient, once authorization has been obtained), usually at a private hospital.57Thepatient may have a choice of hospitals at which to see the consultant, as consultantsusually have practising rights at more than one hospital.58However, in practice consultants tend to use one hospital as their main location, supplemented by one ortwoothers. In our survey of consultants, 34 per cent said that they had treated patients attwo hospitals in the previous 12 months, and 15 per cent said that they treatedpatients at three. 45 per cent, though, said that they had only seen patients atonehospital in the previous 12 months and 76 per cent said that they had treated threequarters of their patients at one hospital.The consultantinitial appointment2.51 The patients next step is to see the consultant selected. The consultant may proposecertain tests or types of examination before coming to a firm diagnosis, or mayrecommend a particular form of treatment, for example a surgical procedure. Theinsured patient may then re-contact their PMI to seek its authorization to proceedwith the treatment recommended, the hospital or clinic proposed for the treatmentand the consultant(s) who will be administering it.2.52 Practice varies, but the PMI will typically check whether the consumers policy orscheme covers the proposed procedure59and whether it entitles the consumer to usethe hospital or clinic concerned.60The PMI will also usually check whether the consultant is fee assured or recognized by it and, in some cases, whether the consultant has agreed to set their fees within the PMIs reimbursement rates.2.53 In the case of surgical procedures, the patient may also need to provide the PMI withthe name of the proposed anaesthetist, and the PMI may check whether they, likethe surgeon, set their fees within the PMIs reimbursement rates.Treatment and follow-up2.54 The patient will then proceed to the recommended treatment. On completion,thehospital and consultant will submit their bills (unless the patient has taken packagepricing), probably direct to the payer. In some cases, where the payer is a PMI

andwhere there are unforeseen or unexpected costs associated with treatment, thepatient must pay a shortfall, the difference between the consultants fee and theamount the PMI is willing to pay for that procedure.56BMA survey of consultant income, May 2011.57The BMA survey indicated that 65 per cent of initial consultations took place at a private hospital.58In our GP and consultant survey, roughly two-thirds of consultants told us thatthey had practising rights at more than oneprivate hospital.59Including whether the consumer has a policy excess or has exhausted an annual claim limit, if any.60The consumer should be aware of the hospitals and clinics they may attend as the list of these facilities will be available onjoining an employers scheme or from the PMIs promotional material.2-142.55 The patient may be invited for a follow-up consultation by the consultant.A follow-upconsultation generally takes less time than an initial consultation and the feetends tobe less (an average of 108 compared with 170 for an initial consultation).61Variations2.56 Figure 2.7 illustrates some possible alternative patient pathways.62In one, thepathway is as described above: the patient visits a GP who makes a referral to aconsultant who then treats the patient.2.57 Variants illustrated include a guided referral where the patient obtains from their GP areferral letter which specifies the type of consultant recommended but not a namedindividual. The patient is then either guided to a consultant identified as appropriateby the PMI or to, for example, a physiotherapy clinic rather than, say, a consultantorthopaedic surgeon.632.58 In other cases, where a patient has cancer for instance, they may be referred by aconsultant surgeon to another consultant (a clinical or medical oncologist for radio- orchemotherapy) and their treatment may be managed by a multidisciplinary team(MDT) rather than by an individual consultant.2.59 While not a variant per